By Arno Schuetze, Abhinav Ramnarayan and Toby Sterling

FRANKFURT (Reuters) – European stock market listings have come back with a bang after the summer lull but blank cheque firms are nowhere to be seen.

According to Refinitiv data, this quarter has seen 42 European initial public offerings (IPOs), which have brought in $8.5 billion. This is the largest amount of IPOs for 10 years. However, there have not been any special-purpose acquisition companies (SPAC) deals since July.

The SPAC frenzy seen in America during 2020 and the first two-thirds of 2021 was widely expected to be replicated here. However, despite the flurry activity prior to the holidays season, the market seems to have stalled.

Christoph Gerlinger from Germany, a German entrepreneur who had thought about setting up a SPAC, has decided to abandon those plans and focus instead on his work as a private-equity manager investing in technology businesses.

SPACs can be described as a firm with a blank cheque that seeks to raise funds through an IPO in order to merge with a private entity. The target stock becomes a listed stock once that occurs, bypassing the more regulated traditional IPO route.

Last year, SPACs were one of Wall Street’s most popular investment options. Many retail investors who remained at home in COVID-19 lockdowns made speculative bets about them.

SPAC issuance in Europe reached its peak in the second quarter, with 15 deals totalling $3.7 billion. Seven more were made in July, each worth $1.4 million, but no new SPACs have been issued since then, according to Refinitiv data.

In Europe, there have been 26 SPACs that were listed this year and raised $6.6 billion. The United States has seen 433 SPACs create new funds totalling $118 billion in that time frame.

In 2007, there were 99 European IPOs. The highest amount since 2011 (with $9 billion in IPO proceeds), according to data from Refinitiv as of September 24.

SELECTIVE ISSUES

SPACs offer companies such as technology firms with high growth potential but little near-term visibility on revenue and profit an avenue to raise funds in a less onerous way than a full-blown IPO.

SPAC sponsors, often well-known entrepreneurs, have the opportunity to make a profit and investors can buy in private companies through the stock exchange rather than the less liquid venture capital fund.

But SPAC sponsors and bankers say demand has dried up in the face of poor performance, a regulatory crackdown https://reut.rs/3m6ezlU in the United States, and waning market sentiment.

The European Union’s markets watchdog also warned in July https://reut.rs/3kB5dyF that SPACs might not be for everyone due to risks of dilution, conflicts of interests and uncertainty as to the identification and evaluation of the target company.

Christoph Stanger (NYSE:) co-head of equity capital market in EMEA for U.S. investment bank Goldman Sachs said that “I expect only selective new issues quality SPACs to come to market.”

According to Refinitiv data, 85 SPACs were listed globally in the third quarter raising $14 billion. This is down from the 309 SPACs that raised $95 billion during the first quarter.

Although some U.S. listed shell companies saw huge gains when the share price surged overnight, most investors are suffering from losses.

One equity capital market banker stated that if an investor is able to purchase an SPAC for a fraction of the list price, it makes it less appealing to invest in a new SPAC.

HOMETOGO DEBUT

In Europe, shares in the first company to be created via a SPAC merger this year started trading last week, but with a whimper rather than a bang.

HomeToGo, a German startup in travel technology, was the target of Lakestar SPAC I. It completed its merger with the shell company on Sept. 22, and was able to back into Frankfurt’s stock exchange.

HomeToGo shares rose slightly on September 22, but they were still lower than Lakestar’s February listing price and 33% less than that of the shell company.

SPAC deals in America have enabled European companies, such as Lilium, a startup air taxi service, Cazoo car sales, Paysafe and Global Blue payments firms, Paysafe and Global Blue and EVgo electric vehicle charging company, Arqit cyber security firm, to become public.

However, most companies are trading below their SPAC issue prices with the exception of Arqit. According to analysts, 60% of SPACs have now traded below their issue prices globally.

The spring saw a shift in sentiment as the U.S. stock market boom triggered the European SPAC wave.

Pegasus Europe was backed by Tikehau Capital and raised $606 Million in April. Hedosophia European Growth, which raised $483M, also listed in Amsterdam.

Analysts said that the market began to slow down as investors realized the value of targets was driving up valuations and making it less appealing for potential investors.

Gerlinger stated that while investors may not be willing to purchase new SPACs, there are still 423 SPACs raising capital totaling $131 Billion and ready to takeover target.

HERE TO STAY

Primepulse, a German investor, looked into a SPAC deal in the past year but decided to abandon it due to declining demand.

SPAC mergers were not always successful. Some shareholders chose to withdraw their capital rather than stay invested. For Lilium, redemptions were 66%, while Hometogo had 37%.

SPAC executives had to spend more on deals and forfeit valuable compensation. Or abandon all mergers. SPACs who fail to seal a merger within the two-year period of their initial public offerings (IPOs) must repay investors.

Rene van Vlerken was the head of Euronext Amsterdam’s listing. This has attracted many European SPAC deals.

The market is full of SPACs, each looking for business opportunities. “The market awaits a few good acquisitions from European SPACs,” said he.

Giacomo Ciampolini of Citi’s EMEA Alternative Capital said that the SPAC market will eventually recover.

“SPACs are already starting to arrive in Europe. There have been combinations announced and closed. Many sponsors, companies, and investors recognize the value of the instrument,” Ciampolini said.